Feb. 10, 2014

Written by

Cindy Heiberger

Jason Frerichs

Ken McFarland

Mike Milstead

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In the past 10 years, Minnehaha County officials have seen general fund expenses increase almost 43 percent. At the same time, property tax revenue, the county’s primary revenue source, has gone up only 23 percent.

It leaves the county staggering under an unfunded mandate to provide basic services, according to Cindy Heiberger, county commission chairwoman. It also leaves the county lurching from crisis to crisis as it allocates resources, said Ken McFarland, commission administrative officer.

A bill in the state Senate would lend certainty to long-term budget planning and would provide more money to counties by inverting the taxing formula. Property tax increases now are limited to an annual consumer price index adjustment or 3 percent, whichever is less. This year’s increase, for example, is 1.4 percent, based on the consumer price index.

A proposal in the Senate would reverse that.

Senate Bill 111 sets the rate of property tax increase at 3 percent or the CPI adjustment — whichever is greater. The CPI adjustment, though, would be capped at 4 percent.

Now, the only recourse for counties that see expenses running away from revenue is to opt out of the formula and ask voters to approve a higher tax rate for a designated period. It’s an exercise fraught with peril. Ask Rolf Kraft. He is the chairman of the Bennett County Commission. The southwestern South Dakota county has a property tax base limited by its inability to levy taxes on tribal trust land where more than 40 percent of the county’s residents live. It also is frustrated because the federal government won’t offer the county payment in lieu of taxes and almost went bankrupt last year. An opt-out approved by its residents saved the county.

“Everybody likes to see taxes low,” Kraft said. “If you artificially hold them low, pretty soon the county is broke. The opt-out is a temporary solution. When you do it over and over, it’s such a traumatic thing every time you deal with that.”

If counties were guaranteed annual revenue increases of 3 percent to 4 percent they could come closer to keeping pace with escalating costs and could engage in realistic long-term planning, say McFarland and Heiberger. The 1.4 percent adjustment this year, “that doesn’t even keep our heads above water,” McFarland said.

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With a foundation of a 3 percent increase, “We could hope to get out of living in emergency mode all the time,” Heiberger said. “If we start to feel like we are meeting our budgets every year, we can do long-term planning instead of always feeling like we’re running to a fire.”

Now, McFarland said, long-term planning is futile.

“One of the common complaints from department heads is we ask them to go through long-term planning sessions, but it means nothing until we see the CPI numbers.”

Minnehaha County Sheriff Mike Milstead concurs.

“Long-range planning is extremely difficult. We go through peaks and valleys. One year, the commission sets it up that we need to replace six patrol cars. The next year, because of the lack of growth and changes in the financing available, we get no cars. The next year, three. It does make it very difficult to get into any cycle of replacing vehicles so my officers are driving safe equipment, and having some assurance when you go into budget hearings that the early discussion wouldn’t suddenly be about cutting employees’ pay by 5 percent because of another difficult financial year.”

County governments might be a guinea pig in all this. Sen. Minority Leader Jason Frerichs, a sponsor of SB111, said there is some interest among legislators in uncoupling the CPI from a variety of calculations where it is used to set revenue.

“I think CPI in general is being scrutinized more and more,” he said. “Local government may be a first location to look at giving them that certainty.”

This year, Minnehaha County is spending $33.5 million on public safety and criminal justice, almost half the county’s $68.8 million total budget.

In recent years, county officials have been able to count on double-digit increases in crime and the attendant prosecution and defense.

“Nowhere are we meeting the demands placed on us,” McFarland said. “I could justify now, based on caseloads, 10 to 12 more attorneys. We just don’t have the resources to do it.”